Final Rule on Employee vs. Independent Contractor Classification
There is a Final rule revising the Department of Labor’s (DOL) guidance on how to classify who is an employee vs. who is an independent contractor under the Fair Labor Standards Act (FLSA) that is scheduled to take effect on March 11, 2024.
This Final rule rescinds the Independent Contractor Status under the FLSA that went into effect on January 7, 2021 and restores a multi-factor analysis used by courts for decades. This multi-factor analysis ensures that all relevant factors are analyzed to determine whether a worker is an employee or an independent contractor.
What is Changing?
2021 Rule
The 2021 rule identified five economic reality factors to be considered while determining if a worker should be classified as an employee vs. an independent contractor. Two factors:
The nature and degree of control over the work.
The worker’s opportunity for profit or loss.
– were considered as the core factors that should carry the most weight in the analysis. The other three factors:
The amount of skill required for the work.
The degree of permanence of the working relationship between the worker and the employer.
Whether the work is part of an integrated unit of production.
– were all considered less probative to the classification. So, what’s changing with the new 2024 Final rule?
2024 Final Rule
Instead of using these same five factors from the 2021 rule for classification, this new Final rule returns to a totality-of-the-circumstance analysis of the economic reality test. These five factors do not have a predetermined weight and instead six factors are considered.
The following six factors are used in the Final rule to analyze if a worker should be classified as an employee vs. an independent contractor:
Opportunities for profit or loss based on managerial skill.
Investments by the worker and the potential employer.
Degree of permanence in work relationship.
Nature and degree of control.
The extent to which the work performed is an integral part of the potential employer’s business.
A worker’s skill and initiative.
In addition to these six factors, Final rule allows the consideration of additional factors to determine this classification so long as they are relevant to the overall question of economic dependence.
How Can Premier HR Solutions Help?
Ensuring that your team members are properly classified is vital to both the daily functioning and legal compliance of your business. If you’re wondering how the Final rule will affect your business and would like additional help ensuring your workers are properly classified, Premier HR Solutions is here for you.
Additional Information on the Final Rule: